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3.8 |
Borrowing Costs |
Borrowing costs are required to be capitalized as part of the cost of the asset if they are directly attributable to the acquisition, construction or productions of a qualifying asset (whether or not the funds have been borrowed specifically). All other borrowing costs are recognized as an expense in the period in which they are incurred.
A qualifying asset is an asset that necessarily takes a substantial period to get ready for its intended use or sale.
Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
Borrowing costs include:
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3. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
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3.8 |
Borrowing Costs (continued) |
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interest expense calculated using the effective interest method; |
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finance charges in respect of finance leases; and |
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exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Exchange differences are generally regarded as borrowing costs only to the extent that the combined borrowing costs, including exchange differences, approximate the amount of borrowing costs on functional currency equivalent borrowings. |
For specific borrowings, the borrowing costs eligible for capitalization are the actual borrowing costs incurred related to funds that are borrowed specifically to obtain a qualifying asset less any investment income earned on the temporary investment of those borrowings.
For general borrowings, the capitalization rate applied to borrowing costs on the consolidation level will be based on cash management strategy, which might be the weighted average of the group borrowings outstanding during the period.